When the news hit the Street on February 25, ITMN more than doubled to the $30 range on excitement that the drug appeared on track for U.S. approval. Investors were also cheered by the fact that InterMune’s announcement of the positive data came a bit earlier than many had expected, as management had said they would be releasing the Phase III results during the second quarter of 2014.
Profit-taking has pulled the shares from a high of $38.73 back down to the current $31 per share range, which is giving us an attractive entry point ahead of market expansion or even a possible takeout that could see the stock soar 45% (or possibly more in the event of a buyout) over the next 12 months.
Because there are no other drugs or therapies approved for IPF, InterMune has a virtually clear runway for treating the condition. Adoption has been quick in the markets currently served, and the company has steadily grown sales from $5 million in 2011, to $26 million in 2012 to $70 million in 2013.
That top line is expected to grow to $137 million in 2014, and perhaps as much as $316 million in 2015. While that would represent a heady jump from previous estimates of about $225 million in annual sales, it’s fair to say that not all sell-side analysts have fully updated their models to reflect the eventual growth here and abroad, since U.S. approval has not yet happened.
Plus, final details from Phase III data will likely be submitted at an industry conference in May and then resubmitted to the FDA later in the year. As a result, those backend 2014 and 2015 revenue estimates could be revised significantly upward. (Boehringer Ingelheim will also present its own clinical data at the May conference for a competing potential IPF drug, but some analysts note that their drug is less positive than what has been seen with InterMune.)
Although management has not publicly stated what the price tag for Esbriet will be domestically, some analysts have speculated that ITMN will be able to charge more than it has abroad, where patients spend about $30,000 annually, and could perhaps charge as much as double that price or higher thanks to the strong data and relatively early launch. With as much as $200 million in sales from Europe and the U.S. in 2015, total revenues could top $400 million.
For now, valuation must be dependent on sales metrics, as InterMune, like many of its early-stage drug development peers, spends a lot of money to generate sales and new drugs. For the current year, management guided for $320-$345 million in operating expenses, a large chunk of which will be devoted to research and selling-related activities.
This means that InterMune will continue to generate net losses this year and next. Hardly resting on its current IPF laurels, InterMune may also be looking to expand into another orphan lung disease related to sclerosis. With about $190 million in cash on the balance sheet, alongside a relatively strong 6x quick ratio, InterMune should be able to weather any development costs quite well. Also, the company just said after the close that it would offer 7.5 million shares to help raise more cash for marketing and commercialization efforts. Shares pulled back in after hour trading, reflecting dilution on the order of about 8% for existing holders, but that gives us an even more attractive entry point.